guy: welcome to bloomberg markets, the european open. we have your first trade of the day coming up. it will be pre-much in the dark today. london. johnson in matt miller is in berlin. we have a lot to talk about. this is what we are watching. the german and hunt intensifies as the christmas market attacker remains at large. how much damage will it do to angle merkel? stocks charge on. the dow hits full-time highs for stopping just short of the 20,000 mark but it is a -- what

will unseat the trump rally? of passkey as it remains drastically short of the capital it needs. is it -- is there any way the world's oldest and can meet its year-end deadline? than half anless hour away from the european open. let's take a look at how futures are trading here in europe. we see red arrows across the for european futures but asian stocks were up, u.s. stocks were up, and we are closer to a record on the dow. 19,974.at that is where it closed yesterday. we would have to make those 20,000 jackets over christmas unless something and it does not look like very much could unseat this trump rally. to the gmm, what we are seeing is a bit of dollar weakness.

clearly, the greenback remains strong at the moment. elevated. we have the japanese yen up 1.71.g we have -- we are in nosebleed territory some would say to the u.s. dollar, how much stronger it can get remains one of those big questions. we are watching a little bit of a retreat. we will see how the equities do as we work her way through the session. -- most people have already vacated their desks . here is juliette saly. juliette: volkswagen has reached a $1 billion agreement with u.s. coroners and regulators to fix or by back about 83,000 audis, vw's, and porsche vehicles with omissions cheating 3.0 liter diesel engines. significantnother piece of the cheating scandal.

a life line for junk ons is about to get [inaudible] . management wealth products held off balance sheet. that is according to a newspaper controlled by central bank. a powerful chain reaction explosion has ripped through mexico's west known fireworks market, killing at least we nine people. scores more were injured as the huge plume of charcoal gray smoke was sent billowing into the sky. the open-air stand and market was bustling with shoppers stocking up on fireworks to celebrate christmas and new year's. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. matt: thanks. here in berlin, the manhunt continues. federal police are looking for

the assailant, the perpetrator of that truck attack monday night on a christmas market on most field,ular, busiest shopping street in germany. they did have a suspect then they relieved him -- released him. he is a pakistani refugee looking for a silent. police did not have enough troops to hold him or connect him to the crime. that means the true assailant is at large and probably armed as he apparently used a gun to shoot and kill the truck driver ,nd hijack that tractor-trailer driving it through the market killing 12 and injuring 45. being lot of questions asked about security services and their ability to manage the activity. we'll talk about what it means politically. both to the french and german

elections. the other top story continues to be the rally we are seeing. we're not sure it is -- if it is the trump rally or the santa claus rally. partsw closed to the five -- 25 points of the 20,000 mark. futures point to an interesting session. we're watching what is happening with the stoxx. the political uncertainty is what we are watching closely. onamed el-erian weighed in the markets. >> we have priced in no policy mistakes, we have priced in no market accidents, and we have ignored all sorts of political issues. part of the reason why the markets are reacting so well is because we are getting an endogenous political disruption in the u.s. that seems to be positive. because we are going to unleash congressional action on the issue but you are getting

political disruptions elsewhere that are not so positive. metcalf, head of is with uso strategy here in london. 20,000, the markets have gone a long way very quickly and this is the vix, it has been crushed over the last few weeks. the complacency is deafening. guess: it is also understandable. obviously, this is the time of year that people are looking at their year ahead hot -- outlook. we highlighted what the risks might be. we have had all of them. and yet here we are talking about 20,000. because we had this resilience to the shocks, you can understand that even though the outlook for 2017 are pull of plenty of risks, because we have gone through 2016 is perhaps an

element of overconfidence. think about what we have had over the last two years it has been a market that has been driven by central banks. looks asd of 2016, it if finally at least when it mays to the u.s., the fed be stepping out of the limelight. that is a big shift for a market that has [indiscernible] no doubt that we are shifting to a more proactive fiscal policy in some places where it will be possible to enact it. is well before trump. in september he talked about fiscal expansion. think it would be, it is taking it too far to say that central banks will not matter and the big challenge in part to the rally in equities is at what

point do high rates begin to hurt? u.s. how much does the control, how much does the u.s., -- how much is the u.s. the tail wedding the dog? since there is no fiscal expansion and germany and other parts of europe do not look like they are starting to spend serious levels of deficit money either. guest: a lot of this hope in terms of fiscal stimulus is very much predicated on the u.s. legislatively, certainly some of the promises of fiscal stimulus do it possible. there is a lot of hope there. the big question for markets outside of the u.s. is that you have that promise of fiscal stimulus but how much will the rest of the world get to enjoy anti-f there is also some -trade rhetoric going at the same time? we have central banks

sticking around, mario draghi will stay in the market and next are nine months beyond what was planned. the bank of england although it seems to talk down the u.k. economy, the u.k. outlook is not ,hat leak in the continue to be to have accommodative monetary policy. is that what is helping us in europe? talk about at what pace the fed will remove accommodation in the u.s. but elsewhere am a we had this from the boj earlier in the week. we know what the ecb -- it is fairly clear. they may be asking questions about the bank of england's her. in general i think it is pretty policynt that monetary will stay extremely accommodative outside the u.s. and we are back to a very familiar market theme which is

policy divergence and we know does tot's with that the dollar and potentially some of the financial market reactions as well. talking about what the fed's balance sheet would look like at the end of 2017. his 2017 the year that the conversations surrounding the fed starting to reduce its balance sheet goes mainstream? guest: yes. there was a very interesting comment over the weekend from one of the fed speakers about that. it triggered the conversation. and it is a really big thing in 2018 in the sense that you look at the treasuries that the fed holds in its balance sheet. they had around 200 $50 billion worth rolling off in 2017 which in theory we assume they can reinvest that. 2018, it is over $400 billion, a much eager number in terms of what will roll off and here's the challenge. they always said once they get rates up near toward more normal levels that they will start to

begin to think about not reinvesting treasuries as they roll off. that will be -- the market might be ready for the dots but what about actually shrinking the balance sheet and you recall what happened in europe when the ecb began shrinking its balance rolled off.he ltr's the market viewed it as significant. what about treasuries? guest: not a good place. when we think about what continues to sell off and the fed talked about at some point that is theing, potential on the trigger. matt: it is perfect to have you here today because you are the global head of macro strategy. we will talk about the big teacher issues. michael metcalf will stay with us. terror strikes the heart of europe as germany's chancellor faces harsh criticism. tol angle merkel be able weather the storm? it is the open, the clock ticks

and be do be a reach is a $1 billion deal with the u.s. an a credit outlook. we speak to the head of corporate research about the risks in the year ahead. this is bloomberg. ♪

matt: welcome back to the european market open.

i am matt miller and guy johnson here with me. we will get the bloomberg business flash. juliette: coca-cola has ended -- entered a deal to buy a 64.5 percent stake in coca-cola beverages africa. the companies have agreed to the drink makerest soft to buy interest in bottling operations and five african-american -- african nations and one in -- two in columbia. the operator of the world's against airfreight carrier boosted investment and its ground delivery business. deutsche bank is eating up its theirboosting [indiscernible] hiringmes the sixth under james boyle who joined from citigroup in july.

deutsche bank is looking to capitalize on an expected rise in demand for quantitative strategy from local investors. that is your bloomberg business flash. matt. matt: thanks very much. up the federal police step to hunt for the truck driver who attacked the christmas shoppers in berlin monday night. that is after the initial suspect was released without charge. let's bring in the germany government editor. first off, why don't you hold up the papers and show us, the bild the mores one of widely read papers. that everybody knows, angst, which is the german word for fear. this is the biggest circulation newspaper and it gives you a sense of what angela merkel is up against. matt: it flies in the face of what the government is trying to

do here. called people down, it is very sad to my horrendous but do not be alarmed. we are on the case. guest: very much so. yesterday there was an hour long news conference by germany's top surface -- security officials who seem sanguine and say we do not have any leads. this is a right or a person who drove a truck onto a large square in the center of berlin as we have been reporting and the authorities have no leads, we will see how that goes. matt: the perpetrator is still singlere, man or woman, person or group of people. and essentially, the german intelligence agencies at least from what we heard yesterday, who, how many, why, etc.?

guest: this is what we have been told of oakley. there is an investigation going on and presumably everything has kicked into gear. this is near christmas were the country is winding down. ons is casting no aspersions the german security apparatus, but yes, it is -- all options are open, this is what we were being told yesterday by the security people. help comingre any from elsewhere in europe? in terms of -- these attacks were formulated elsewhere and enacted in another country. is there any evidence that might be the case here? of that soidence far. the one thing we have heard explicitly is from president obama who said the u.s. is ready to help with the investigation in any way possible. meeting, of course, we know that

the u.s. has the intelligence and surveillance means to help, but there is no sign of that yet. maybe one thing i could point out is there has been a claim of responsibility from isis as we have reported. claim mentions specifically germany's role in the war on the anti-isis campaign. you see that there is connection there that will certainly be part of the investigation. your time thisr morning. i know you were here all day yesterday and you probably will all day today into christmas covering this story for us. stay with us. michael metcalf from state street global markets. the market did not budge yesterday. we did not even have a red open after this what can only be seen

as horrible news, geopolitically, even beyond the human tragedy but for europe, for angela merkel, for germany. why do we take these things so lightly in the investment community? it is a tragedy and i we taking it lightly. in terms of the market reaction, i think the very sad thing is we have had several shocks like and we areent years not seeing the typical market reaction we got five or even 10 years ago when we get shocks like this create you would typically see demand for safe havens, the swiss right, that kind of thing. we are not seeing those kinds of market reactions now. the reactions would

typically proved to be short-lived anyway. and ie it did not change think that is currently what we are seeing. we have seen several examples of that both this year and in recent years where we are not seeing the demand for safe havens that we have seen in the past. beenthe market has shockingly bad at pricing in fiscal risk. what we have learned throughout this year is the systemic events -- we see the opposite market reaction and you can see this again in the way that withny is reacting here with trump, brexit, etc. the market is really bad. is it the market gets the timing wrong because these are slowburn events and things take a lot longer to work their way through? the german election will be the subject my it will be immigration. this is a slowburn story. me take the first

part of your question. it is difficult for markets to discount clinical risk. that certainly their reactions to some of the political events we have had in 2016 have been surprising. the onenk, let's take part of this, the reaction to the referendum in italy. i think perhaps what that showed is markets were beginning to get used to these kinds of shocks. and that investors were well-positioned for that. did warn of some of the events. they are trying to discount it that it is difficult. guy: thank you. we will deal with the stocks we need to be watching next. this is bloomberg. ♪

matt: where are minutes away from the european market open. dealwagen has agreed to a to placate its car buyers in the u.s. 83,000 cars purchased that were affected by the diesel scandal. these are volkswagens, audis, porsche is with the three liter diesel engine. here you see a couple days trading at the u.s. depositary receipts. i have got a mice -- on my screen volkswagen shares since the scandal last year. they were trading up around 170. we are down to 140.

we will see how the market takes this news at the open in just four minutes' time. this is bloomberg. ♪

guy: good morning. welcome. you are watching bloomberg markets. this is the european open. i am guy johnson. matt miller is in berlin. matt has your morning brief. the market attacker remains at large. how much damage cams due to germany chancellor -- campus due to german chancellor -- can this do to german chancellor emil michael? -- angela merkel? what can unseat the trump rally?

drastically short on capital. is there any way the world's oldest bank can meet the year-end deadline? theseeta-talk about markets. they are expected to open softer today, to be honest. that is take a look at what we are seeing. this is the picture in europe. we rallied into the close yesterday. the ftse 100 going nowhere in a hurry. not anyt they're market makers. it is soft. the cap opened softer -- the cac opened softer as well. we expect the backs to open down to open down as well. ftse down by 0.2 percent. there are stock stories. manus cranny, what is going on? manus: an early last of champagne. i can tell you one thing. stocks were almost --

what would it take to get us up and over the fence between now and next thursday? a number on the store you have been talking about, 25% of the 30 day moving average. the dow at a record. earnings in europe, are expected to grow by 12.5% next year. europe had a good growth year. currency hedge -- if you had any mind at all, you might be concerned. have a look at this. markets are the calmest if we get to the nex rest of the mont. markets in europe are the calmest ever. the stocks is trading at a level we have not seen since 2014. we are looking at the calmest talk market on record -- stock

market on record. does that mean you want to buy some protection, does that mean you want to be in an unprotected way? when it comes to the u.k., the gulping market is just starting to -- the gilt market is just starting to get underway. u.k. five to 10 year inflation expectations heading 3%, the highest since 314. what does that do to your bond market exposure? -- since 2014. what does that do to your bond market exposure? the great big reflation party trade. i'm off to the big radio party. let us get your stocks to watch with nejra cehic. >> it is a great radio party. the stocks and looking at today, nice moves starting with the health care set your and chilean sanofi.n actelion and

what i'm talking about is the contingent value. we are hearing that the takeover cvr sanofi may include a per about, $275 price share. this is according to people familiar with the discussions. what that cvr does is let the acquirer agree to a base price an additional amount only if experimental medicines work out though some suggest they will market the full value. actelion gaining on that. looking at volkswagen reaching a $1 billion agreement with u.s. car owners and regulators to fix or by back about 83,000 audi, vw .nd porsche vehicle is what this accord does is cover some luxury models released crucially, but also

resolve another significant piece of the vw emissions cheating scandal, so we are seeing volkswagen higher on that and then heading lower, banka monte dei paschi, 5 million euros of through tuesday, but the bank will probably fail in its effort to raise the 5 billion euros of funds according to people with knowledge of the matter. the stock getting punished on the back of that news. tdk is acquiring a san jose -based company. it traded at the close. consumer electronics. et cetera, et cetera. maybe some of those drones you will be getting for christmas as well. this is the kind of technology we are talking about. what navigation -- portable navigation devices. at buying that at $30 a share.

that is turned to something else. monte dei paschi approaching its day of reckoning. the italian finance minister rejected claims that it is on the brink. >> the government is ready to adopt one or more measures able to implement a plan of capital strengthening through capital increases and able to guarantee an adequate level of liquidity. the government asked the parliament for permission to adopt financial measures worth up to 20 billion euros, which will increase the national debt from the targets is usually indicated in the budget to be financed through the sale of sovereign bonds. now: much crossover right to damage cream in me a lot -- leafgreen ino dan milan. can at the 5 billion euros it is after?

>> our reporting has consistently shown it will be difficult to reach this target. they put out a statement late yesterday saying the amount debted so far on the for equity conversion is up to about 500 million euros and i think they would like to get probably at least one billion from that, but the problem is finding another billion in addition to that from a , youlled anchor investor know, does not look realistic right now, so hence, the government is moving quickly to put together this backstop, not just for monte dei paschi, but for other banks that need to recapitalize in this country. matt: so what is the government going to do? we are reporting that it is looking to raise its public borrowing limit by 20 billion euros. does that mean it is only going to have 20 billion euros to try

to fill the capital holes? >> that is the number right now. the parliament will be voting today on raising the public debt by that amount, and then the next step is the italian cabinet to flush outfriday the details and pass the decree is goingn how this aid to be distributed, you know, there are lots of options and they need to get clearance from brussels and the e.u. commission to make sure that whatever they design meets the regulations for the e.u. on competition. see you this morning. thank you very much indeed for your reporting. dan liefgreen joining us out of milan. have spent a, we lot of time talking about the banks. do we care about the italian banks with the big picture stuff? is this important?

we blew past the at sign referendum. the italian bank needs rescuing. that is normal business, isn't it? >> not necessarily normal. guy: history would dictate we have seen a lot of bank rescues in italy. >> the question for the bigger picture is, is this systemic? ithad all the stress tests, is pretty well discounted. what we learned in the reaction to the renzi referendum is a lot of bad news was already in the price and, you know, i would assume that, things like the italian -- these are not surprises. michael: they are very well reported and discussed. investors are ready for them, and because, you know, we know the financial system is stronger than it was five years ago that actually, it should be limited. matt: do we know that?

one of the things we learned, i aig, with the bailout of is the channels of infection are often in places he would not expect and the danger is more severe than you might think at first blush. is the european banking system in a much better situation than it was five years ago? michael: i think in terms of us having information that are published through this stress test, the regulators are all the this and looking for channels of contagion that can occur. is it possible that one is messed? yes, of course -- is missed? yes, of course. given all the regulation and stress testing, it is safe to assume the market is more secure than it was. does it mean it is 100% foolproof? absolutely not. guy: i think about italy next year and i have had a lot of conversations. this is where these stress really lies.

how does that manifest itself. michael: i think that as we know, there are economic risks and little or risks, and i think in europe, occasionally in certain places, they overlap. case of italy, if there bailout gets them into -- matt: i'm wondering how that -- guy: i'm wondering how that actually happens. it changes quite often. the front minister has an argument with wolfgang schaeuble , and they basically argue about -- and brussels is probably in the mix as well -- they argue about whether a bank bailouts it happened and whether were not kind of italy's numbers on economic growth trajectory are viable going forward from here. where does the line get crossed? michael: it would be the kind of thing where, if the europeans for some reason decided to oppose the way in which italy decides to do its bank bailouts if it needs to do it, actually then you end up with a

confidence motion against the government and you potentially get fresh elections. that would be one mechanism. if you want to play out the worst case scenario, that would be one way in which it could get played out. michael will stay with us. michael metcalfe, global macro at state street, global markets. we'll hear more about the big picture issues. till to come on the open, a brexit transition. we digest you kate prime minister theresa may -- u.k. prime minister theresa may's adjustment period for u.k. businesses and then we'll check on the chinese bond market as outflows stand yields soaring paper, and the new $1 billion deal to compensate for commission's cheating and the rest. an analysis at 8:50 a.m. u.k. time. this is bloomberg. ♪

matt: welcome back to the european market open. i'm matt miller in berlin. guy johnson in london. let us take a look at the market here. we have got the ftse, i guess, gaining. can you call that gaining? really, unchanged. the dax in germany unchanged. the cac is down 0.2%. movement there. the stoxx 600, not moving much at all either. really, very little change in

markets. 15 minutes into the open, guy. the storiesne of that has dominated the ftse 100 this year, and it is interesting to see. we are actually getting up to the point where even in euros, positiveend up in territory, firmly up in pounds. the brexit story responsible for that. he brexit transition phase is the neat thing we are talk about. theresa may has signaled she support an adjustment period. told a parliamentary committee she will make a speech earlier in the new year, giving new details of her apart for negotiations. >> i said the government would treat you article 50 before the end of march next year. we will meet that timetable and don't intend to extend the process. we will publish more information about our approach. i will be making a speech early in the new year setting out more

about our approach and the opportunity i think we have in the country to use this process to forge a truly global bridge in that embraces trade with countries across the world. why didn't the pound rally more on that, do you think? yeah, it is a good question. mr, it is because right now, it is just dollar strength. i think the other part we are waiting for is some of the high court judgment to see which way that does. this is also, i think, the beginning of the question is how much of this is now new news? the process will take an awful long time. i think it'll take a long time for us to figure out what kind of brexit we will get. they might lay out some of their negotiating position and there might be a transition deal, but it will take months if not years to then actually figure out what that ultimately means.

and i think before then, fundamentals are going to matter just as much as the politics again. what theus talk about market is scoring in terms of economic growth. he said this chart here, the gdp forecast 2016-2017, you can find these on your terminal, and what we are looking at here, that is -- other way around -- 2017 forecast, the big drop. the interesting bit here is the way we have come up here, that the market price has an awful lot of bad news and is raising that bad news out to be confounded by the strength of the data. the question about the pound, i saw this as being priced into the pound, but not all of it. what is the markets thinking about what the economic trajectory of the u.k. now the fight? michael: i think we realized that it is very hard. we talked about why market pricing sharks. that white line is one of the reasons in that the out turn for

u.k. gdp will be higher than what we thought and made before the brexit vote. the 2017 forecast is already double from its low. we thought it would be an economic shock in the near term. in fact, we don't know that will be the case at all. ands a bit of a slow burner actually, yes, investment spending you assume would be disrupted by this, but so far, relatively minimal evidence of that. manus talked about u.k. inflation expectations, so it is at 2.5% now. if growth does not flow, what does the bank of england do next year? they put in preemptive easing and we know there is reaction to that. that is a big question for twice 17, i think. matt: michael, aren't -- for 2017, i think. matt: michael, aren't you hearing anecdotal evidence about commercial real estate projects being put on hold and possibly

companies that want to operate european wide moving headquarters out of london? is that actually happening? this -- iook, i say see the same reports in the media you are referencing, and yes, there will always be stories about some firms, you know, locating outside the u.k. and some firms locating inside the u.k.. the one thing i would say from a macro point of view is that that has yet to show up in things like foreign direct investment data. it is not apparent in the investment spending data and gdp numbers, and you know, i suspect the bank of england will look at reports around the country. in general, they will base their policy on reported growth, reported balance payment flows. part of the problem here is uncertainty, the lad with which -- the lag with which brexit will hit.

the one thing we can say it with absolute certainty is that we thought it would be an immediate shock to confidence and that did not happen so that is why we have this interesting question for 2017, which is will the next move for the bank of england the two reign back some of the preemptive moving that they put in place? matt: very interesting. six months on after the vote, we have this sort of anecdotal horror story that has yet to prove itself out in the data. michael metcalfe is a global macro strategist from state street global markets. he will stay with us. up next, we check in on the chinese bond market. outflows and yields in china soaring. this is the number. -- send yields in china soaring. this is bloomberg. ♪

guy: welcome back. you are watching the european open. big moves in the chinese bond market over the last month. yields soared at the front end of the curve. the move has narrowed the spread and tens inone terms of the yield to at least since february 2015. this is the charts are you can see. i have not got an exact number but nevertheless, you see it here. the idea being that actually attends may have further to go -- the tens may have further to

go. tens here. chinese you can see the candlesticks dispersion on a daily range getting greater and greater am to come back to that move in the tens, you can see the move has been aggressive but nevertheless, another maybe 40 basis points, 60 basis points on top of that would take is close to 4%. michael metcalfe from state street global markets is still with us. we started last year with being considered about china. what are the chances of doing the same thing at the beginning of 2017? michael: reasonably high. we talked about all through this program that the market has been resilient and i think, one of the concerns right now is it is very low. we have yields rising everywhere a course, but i think tightening in financial conditions in china and then the question of how the authorities is one of thet, big questions and hurdles the risk rally needs to get over at

the start of the year. michael, as you are the global macro strategist, maybe you can help us connect this china news. infar away, and since it is bonds, it is kind of a drier story that may be a company story would be. how do you connect that to the european economy? how does this have direct impact on our lives everyday? l, that is a really interesting question. one of the things you have to remember is that the beginning of this year, it was concerned about the path of the chinese economy and the tightening of financial conditions and the impact that would have on the global economy, and you know, i think it's fair to say in the first half of 2016, monetary policy everywhere both in europe and in the u.s. was always a set with one eye on thinking about where the global economy was going, what were international

financial conditions like? in the trump wave we have had, that kind of international element to policy has been lost a little bit, and i think we are assuming that it does not matter anymore, but if you got serious implications in emerging markets, it will definitely impact policy in europe and indeed in the u.s. guy: uses china and the german ppi, two massive exporters into the rest of the world. chinese ppi went positive a couple of weeks back. german ppi went positive yesterday. michael: i think inflation in general is going to be a really big theme. you know, we have had energy driven deflation and, you know, you see it on the chart there. you have seen it for a number of years. this has been a big supporter factor of the bond market. given yields have reasons of are

in many countries, is what is going to be the fuel that moves moves it? it will be inflation. guy: michael metcalfe. this is bloomberg. ♪ generosity is its own form of power.

you can handle being a mom for half an hour. i'm in all the way. is that understood? i don't know what she's up to, but it's not good. can't the world be my noodles and butter? get your mind out of the gutter. mornings are for coffee and contemplation. that was a really profound observation.

you got a mean case of the detox blues. don't start a war you know you're going to lose. finally you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. guy: welcome back. this is bloomberg markets. this is the european open, which was 30 minutes ago. we are waiting on a bank to give us an announcement as to what it is doing in terms of rates. we are living in a world where interest-rate are going to become an interesting theme in terms of going up rather than down. itsriksbank has left keynote unchanged. this is a bank that has an investing housing market right now and very negative rates. how long are those sustainable and can macro prudential rules change that dynamic? things to think about in 2017. a let us get to some of our top stocks stories.

here is nejra cehic. nejra: it is the battle of the titans are looking at with my first stock and it media set. -- and media set. it had quite an impact. the stock surged 23% yesterday and is continuing its gains .oday really intensifying that battle for control of the broadcaster that was founded. highest has hit its since august 2015. on looking at connecticut as well. stock stock has risen the most since february and hit its highest since january this year. it is a science amtech tech research company gaining after buying target systems for 57.5 million pounds. and we have at halley and -- moving is-- actelion that the ceo has faith in me

swiss drugmaker's experimental -- they might have a negotiating tool for actelion. we are hearing the sound of the takeover -- the sanofi takeover might have prices for shares under negotiation according to people familiar. what the cbr does is let an acquirer agree to a base price plus an additional amount only in experimental medicines which workout. was weaker earlier. what we know from history is that holders may not get the whole cvr value. actelioners in responding positively. guy: you can see a little bit of a drop in euro stocky.

distributions, volume price. as you can see them moving around quite a lot, we are getting a little bit of a drop-down in terms of the value of the euro versus the stocky. the riksbank saying it will buy 30 billion government bonds for your first half of next year and in terms of what he is happening, it sees a slow .theeciation of the currency market seems to be taking this at the margin, the very margin, slightly more hawkish than we had anticipated. with us now, paul watters. one of the key authors of the s&p european corporate credit outlook for 2017.

europe remains a relative laggard in the cycle and with risk factors, monetary policy is likely to remain exceptionally supportive which is why we have been hearing about the riksbank, taking a slightly different view from the ecb though that relationship is likely to remain tight. i read your note this morning and i chuckled a little bit about the kind of -- you seem quite concerned about europe. paul: there seems to be an awful lot of factors in the mix that we do not understand. guy: how much of a black boxes 2017 for the european economy? paul: the key problem of europe is getting growth up to a sustainable level where actually that can then help debt to become more sustainable long-term, so the problem at the moment is that we are so dependent on the support provided by the ecb in terms of extremely easy monetary policy as we know, at a time where you have got sort of little toitical will or initiative actually implement fiscal or --uctural and form which can

reform which can improve productivity and support growth getting to a sustainable level. paul, how do you protect yourself from the potential pitfalls in a market make we have seen today where everyone is worrying about it would saw in interest-rate or seeing it again? paul: when you look at this from a corporate perspective, and so, from a corporate perspective, in this environment in europe, i think we continue to expect companies to remain disciplined when it comes to taking advantage of this incredibly cheap debt which is available, whether it is from the bond markets or from the bank market, so, you know, that, from our ,oint of view, is one outcome one standout feature of what is happening right now from a corporate perspective. guy: what is the spread in europe? the german economy is humming right now.

unemployment is incredibly low. they are generating quite decent growth numbers. the interest-rate environment is way wrong for germany with their view at the moment. what sectors in particular stand out? they should have a better year in 2017. we were talking about volkswagen, the car sector. paul: just on your point, obviously, there is still big fragmentation in europe. germany is doing well, but the periphery is not doing well. youth unemployment is under 40%. political problems here. coming back to your question, likely to be better, the auto sector looks pretty much top cycle in europe. vehicleeeing light , but that ised fo going to slip next year and fall

-- growth in europe will fall to 2% next year, but a lot of that is related to the u.k. as well. that seeps into the overall picture in terms of car sales in isope as a whole, so that one sector. retail is another sector which actually could have a much tougher time next year. again, particularly in the u.k., because the impact of weaker sterling feeding import costs, but also we have to recognize the consumers in europe will probably -- their disposable incomes will be squeezed next year because of the rise in headline inflation and wage growth being low. it is going to be a tougher environment to retail for instant next year in europe as well. matt: paul, obviously, the cross-border concerns weigh heavily on an industry like autos, so reliant on globalization, retail, as well as you said, paying for things coming in a country and trying

to sell things by shifting out of the country. how does this way the protectionism, which obviously youts in the u.s., how to price that risk into your outlook for 2017? paul: well, i mean, it is very difficult to price that in, you know. at this point, as far as the u.s. is concerned, there is no clarity on ultimately what president-elect trump is actually going to do when it comes to protectionism, so as you know, and i'm sure other commentators have said, in the u.s., it is very much glass half-full at the moment, the looking at all be positive, you know, affects that could come from, potential tax reform, and sort of deregulation, and infrastructure spending, but no detailed photos at the sort of more negative impact from protectionism. highly negative

particularly for some southeast asia and countries that are very dependent on exporting to the u.s.. as far as brexit is concerned, that is a huge uncertainty. no real clarity around what that really means in terms of the sort of two-way trading relationship between the u.k. and europe for quite some time and i know you are focusing on that a lot today. another thing i want to focus on right now is a storage is breaking out of spain. a court ruling on some mortgage forrest payment case spanish banks, and essentially, spanish banks have lost this ruling. what the court is saying is that spanish banks are going to have to pay back borrowers that they had charged them too much interest previously, and so this will cost spanish banks. as a result, you see some nder has comenta

down and you will see this across the spanish banking climate. negative news for spanish banks from this court. we'll continue to focus what is happening in asia. stay withrs's were to us. up next, we'll look east and hear from the head of the asian development bank, his views on china, and the regional phone conflict. this is bloomberg. ♪

matt: all right, breaking news saying.u. court ruling spanish banks will have to pay back some of the money that they overcharged to customers for mortgages for before a 2013 mortgage floor was put into place, so as a result, we see spanish banks falling after losing this battle in an e.u. court. you see red arrows across the board. santander both down as is bbva. guy: we'll come back and get more details on all of those issues as we digest what has been coming out of the courts relating to those mortgage payments. the asian development bank is marking its 50th anniversary and despite global uncertainty, it still sees stability for asia. bloombergs shery ahn caught up

with the president, who weighed in on what is next for the region's biggest economy. china is in development for a harmonized society model including more consumption than investment, more service sector, so they are overinvestment, very strong investment of share prices, so there is sure to be some adjustments, but i don't think they will have a hard-line -- a hard landing. shery: when you're talking about adjustments, let us talk about next year because the forecast growth for developing asia is 5.7%, but given how we got a more hawkish federal reserve in the u.s., will that necessarily mean an adjustment for you as well in your forecast? , but is too early to tell

5.7% for next year speaks to the rhetoric of these countries, singapore and hong kong. it is already 6.2%. it is very solid growth. momentum depending on the regional demand from other countries, so i think we'll keep having a solid course. can the momentum to hamburg by a sore in the u.s. a soar in hampered by the u.s. dollar? also, it can help some issues of flowing out of money which came to asia, but the changing of policies by interest rates does not matter much and also it is reflections of a

stronger american economy. and also, that depreciation would give those countries more competitive edge, so i don't think the appreciation of the dollar would cause us trouble. the adb president talking to shery ahn. let us bring back into the conversation paul watters, still with us on set in london. the chinese in some people in minds arestates' currently manipulated -- currency manipulator's. it is slightly sort of against the facts of what is being suggested. can the chinese manage their way through 2017 in a sustainable fashion without a big blowup because this time last year, we were getting ready for a big

move in chinese assets and we could see the same thing in 2017, but that is an important political year. paul: our view on china for next year is that we think the authorities have the flexibility and will to actually manage the economy and prevent blowouts of any sort of hard landings three the course of next year and that is very important as you have the 19th party congress in september and it is really a changing of the guard in terms of the growth, a big one, because five of the seven standing members will be retiring and actually six of the 18 on the politburo is solve our retiring itself, so the president, it is in his strong interest to manage through to september without any sort of disruption so that actually, the right people can get appointed, so as you say, the

key risk for next year is not so much the growth story, because ultimately, credit will expand to support the domestic economy, but the issue is much more in terms of the external focus on, as you say, the capital and what it means for the currency ultimately. again, the authorities are very focused on the effective exchange-rate and trying to keep that relatively stable, but you can see the margin, there is weakness coming through. if it actually picks up too much, the authorities will need to try to address that through some sort of tightening up on capital controls around m&a, overseas -- there has been talk of that, absolutely. matt: paul, what is the difference, when you're analyzing a corporate debt strategy for chinese companies, or europeano u.s. companies, i mean, i assume that ,ou have very stark differences

for example, the lending base must be very different. paul: yeah, i mean, for us, on aly, we rate companies standardized basis, so, you know, it is very important for us in terms of the quality of the information that we have to make that rating assessment, so clearly, there are some different -- there are some differences in information provision and standards. where the quality of information is not sufficient, we would not rate, be able to rate those companies. at the same time clearly, there is much greater tolerance for forrage and debt chinese companies that you typically see in the developed markets, and that it's certainly the case, and again, that is reflected in the rating. one of the issues that i think everyone is really thinking hard about, and it will become, i think, more of a political issue through 2017 is to the extent

the chinese companies continue o engage d inebt fun -- in debt-funded overseas acquisitions, what is the source of their funding? sop banks? guidance and support behind the scenes from chinese authorities? let us watch that pure that will be a story for next year. matt: it is absolutely a question that germans are asking, and whether or not it really is a legit market economy to begin with. paul, thank you so much. paul watters, head of corporate research at s&p global ratings. great to get your important perspective for anyone doing business in this new global world. up next, driving up costs, vw reaches a $1 billion deal with u.s. authorities to fix or buyback commission's treating cars from volkswagen, porsche, or audi.

that story next. this is bloomberg. ♪

matt: welcome back to the european market open. almost one hour into trading, spanish banks are down across the board. this as an e.u. court rules that

some of these banks may have to give back billions of euros to mortgage compas customers because they were overcharged prior to a may 2013 spanish ruling on so-called mortgage floors. you can see banks like bntander, bongo popular, sabadell all down as a result of this ruling. some of those jobs are accelerating as we get further into trading. they will fix or buyback about 82,000 audi vw and porsche vehicles. it covers luxury models and resolves another significant piece of vw's omissio emissionsg scandals. how important is this new

agreement? does this put them in the clear now, finally? step thathe next volkswagen has taken and it is definitely a major step but the emissions scandal is far from being resolved. they have been working very hard over a couple of months on this agreement, and as you said, it will cost them roughly $1 billion, but there are strings attached like smaller details to be ironed out like technical details, plus some potential forent and compensations u.s. car buyers, potential fines from the ftc, so they are not quite yet there. guy: is this going to increase the pressure in europe for some sort of similar deal? we have not seen this on this side of the atlantic. claims, what volkswagen is that the legal conditions in

europe are just different, and i mean, if you look at the residual values in europe, they are still after all pretty stable, so the car drivers -- the car buyers here don't suffer the same sort of financial damage that many customers in the u.s. have been facing because the cars have reached emissionn limits -- limits so they are more difficult for resale. the situation is slightly different in europe, but still, the pressure for volkswagen to pay out compensation to european customers as well definitely will not go away anytime soon. guy: thank you very much for your reporting. thisdw is doing to close door. stay with us. "surveillance," and bloomberg radio a break, live in digital. bab

that is the way you can follow the story on your bloomberg terminal as well. big market events are taking place. a busy morning. this is bloomberg. ♪

berlin manhunt. german investigations intensify the search for the person behind this deadly christmas market attack. markets rallied. the dow climbs to a fresh record, within 25 points of 20,000. the stoxx europe 600 reached its highest level of the year yesterday, currently trading slightly lower. and lendersbanks may have to give back billions to mortgage customers after a ruling by the e.u.'s